KEATING INDICTED IN SAVINGS FRAUD AND GOES TO JAIL

By RICHARD W. STEVENSON, Special to The New York Times

Published: September 19, 1990

LOS ANGELES, Sept. 18—
Charles H. Keating Jr., who has been widely portrayed as a symbol of the misconduct and reckless investment style that devastated the savings and loan industry, was indicted on criminal fraud charges today and led to jail after he was unable to post the $5 million bail.

The indictment, which also named three associates of Mr. Keating, involved the first criminal charges from state and Federal investigations into Lincoln Savings and Loan. Mr. Keating owned Lincoln from 1984 until it was seized by Federal regulators last year, after the institution's investments in real estate, ''junk bonds'' and other ventures went sour.

Cost Put at $2 Billion

Federal regulators estimate that the failure of Lincoln, which was based in Irvine, Calif., will cost taxpayers more than $2 billion, the most expensive savings and loan collapse yet.

The indictment, handed up by a state grand jury, accused Mr. Keating and the other defendants of 42 counts of criminal fraud relating to the sale of $250 million in high-risk bonds to depositors from Lincoln's branches. The bonds eventually became worthless when Lincoln failed and its parent company, the American Continental Corporation, went bankrupt.

The indictment charged that Mr. Keating and his associates violated California securities laws by misleading investors about the nature of the bonds, which were not covered by Federal deposit insurance.

Federal regulators last year charged Mr. Keating in a civil racketeering suit with having looted Lincoln, and sought damages of $1.1 billion. Last month regulators began a legal action against Mr. Keating and several associates to recover $41 million in depositors' funds.

Mr. Keating has fought all the charges against him, portraying himself as a victim of a vendetta by ''malicious bureaucrats'' incapable of understanding the sophisticated financial and real estate deals he was engaging in through Lincoln.

Mr. Keating has also been at the center of a scandal in Congress over whether five Senators to whom he had made campaign contributions of hundreds of thousands of dollars acted properly in intervening on his behalf with regulators before Lincoln's failure. In Washington, the special counsel to the Senate Ethics Committee has recommended that the panel move forward in its inquiry on the actions of the so-called Keating Five.

No Plea Entered

Mr. Keating, who is 66 years old, did not enter a plea during his arraignment today before Judge Gary Klausner in the Los Angeles County Superior Court. His lawyers argued that they had only had a few minutes to review the indictment, and were granted a request for the proceeding to be continued on Oct. 5.

But Judge Klausner, in a move that appeared to surprise even the prosecutors, set bail for Mr. Keating at $5 million, citing the possibility that Mr. Keating would face up to 10 years in prison should he be convicted. The prosecutors had earlier told the court they would not seek any bail, at least at today's hearing.

The other defendants are Judy E. Wischer, 42, the former president of American Continental; Robin S. Symes, 37, the former chief executive of Lincoln, and Ray C. Fidel, the former president of Lincoln. They were being held while trying to raise bail of $1 million each set for them by Judge Klausner.

Today's indictment did not address the broader allegations of fraud raised in the civil suits against Mr. Keating, but instead was confined to the relatively narrow question of whether he and his associates had failed to make clear to the 22,000 people who purchased the American Continental bonds through Lincoln branches that they were making a high-risk investment. The California Department of Corporations had approved the sale of the American Continental bonds through the Lincoln branches.

'Gave the Directions'

But state prosecutors said the salespeople often sought out Lincoln depositors whose certificates of deposit were maturing, suggesting that they could earn higher returns by investing in the bonds. Mr. Keating and the other defendants, the prosecution contends, were legally responsible for the actions of the salespeople and for the marketing of the bonds, calling them ''the people who gave the directions.''

Many elderly depositors and others have testified before Congress and in other hearings that they lost their life savings and that they had been left with the impression by American Continental salespeople that the bonds were perfectly safe or federally insured.

Regulators have said that the proceeds from the bond sales were passed from Lincoln to its parent, American Continental, where they were used by Mr. Keating to invest in real estate and other transactions that eventually went sour, causing the institution's collapse.

'Tightly Focused' Case Sought

''We tried to have this be a tightly focused and narrow case that could be easily understood by a jury,'' said Ira Reiner, the Los Angeles County District Attorney. ''We put together a case that can be easily prosecuted.''

The indictment did not specify the nature of the misleading information purportedly given to investors, or what information about the bonds was reportedly withheld. Mr. Reiner said he could not discuss the evidence backing up the charges until transcripts of the testimony given to the grand jury in the case are made public, which will be within 10 days.

It was unclear whether Mr. Keating would eventually be able to raise the funds necessary for him to post bail.

Photo: Charles H. Keating Jr. being led to jail in chains after his indictment on fraud charges stemming from the savings and loan scandal. (Associated Press)